Business
Apple Tariff Costs Uncertainty Triggers Share Drop, Says Tim Cook
Apple tariff costs
Key Points
- Apple reported second fiscal-quarter earnings Thursday that beat Wall Street expectations, but the company’s closely-watched Services division came up light versus estimates.
- The company expects tariffs to add $900 million to its costs for the current quarter, assuming no other major changes occur, CEO Tim Cook said Thursday.
- However, he added that it is “very difficult” to predict beyond June “because I’m not sure what will happen with tariffs.”
- Cook told CNBC that Apple is already sourcing about half of the iPhones for the U.S. from India, and most of its other products for the U.S. from Vietnam, where tariffs are lower than they are from China.
Apple tariff costs
Although Apple’s widely watched Services segment performed better than anticipated, the company’s second fiscal quarter earnings were released on Thursday, exceeding Wall Street’s forecasts.
During prolonged trade, the iPhone manufacturer’s stock dropped as much as 4%.
Here’s how Apple did versus consensus estimates for the quarter ending in March:
- EPS: $1.65 vs. $1.63 estimated by LSEG
- Revenue: $95.4 billion vs. $94.66 billion estimated by LSEG
- iPhone revenue: $46.84 billion vs. $45.84 billion estimated, per StreetAccount
- Mac revenue: $7.95 billion vs. $7.77 billion estimated, per StreetAccount
- iPad revenue: $6.4 billion vs. $6.20 billion estimated, per StreetAccount
- Wearables, Home, and Accessories revenue: $7.52 billion vs. $7.95 billion, per StreetAccount
- Services revenue: $26.65 billion vs. $26.70 billion, per StreetAccount
- Gross margin: 47.1% vs. 47.1%, per StreetAccount
In an earnings call with investors, Cook made Apple’s first remarks regarding the effects of tariffs on the firm’s operations, stating that the company had “limited impact” in the March quarter due to supply chain optimization.
According to Kevan Parekh, Apple’s finance boss, the company anticipates its overall sales to rise by “low to mid-single digits” on an annual basis for the current quarter, which ends in June. Apple’s June quarter revenues for the previous year were $85.78 billion.
In addition, the business anticipates a midpoint gross margin of 46% after accounting for tariff expenses. Analysts were expecting profits per share for the third quarter to be $1.48 on revenues of $89.45 billion.
Cook stated on the call that, assuming no new tariffs or significant changes take place, Apple anticipates that tariffs would increase its expenses by $900 million for the current quarter. It is “very difficult,” he continued, to make predictions past June “because I’m not sure what will happen with tariffs.”
During the call, Cook stated, “We will continue to run the business as we always have, making careful and considered decisions, concentrating on long-term investments, and being committed to innovation and the opportunities it brings.” “We are still confident as we look to the future.”
Cook told CNBC that Apple already sources the majority of its other goods for the U.S. from Vietnam, where tariffs are lower than those from China, and around half of its iPhones for the U.S. from India. According to Cook, Apple continues to manufacture the “vast majority” of its goods for other nations in China.
According to Cook, Apple is purchasing 19 billion chips from the United States this year, and the iPhone uses a lot of locally produced chips.
“You really need to take a step back and examine the individual components and their origins when it comes to an iPhone,” he stated.
According to Apple, the board approved up to $100 billion in share repurchases this quarter, compared to $110 billion last year. Additionally, Apple said that it will boost its dividend by 4% to 26 cents per share.
“Annual dividend increases are still in our plans,” Cook stated.
During the quarter, the company’s net income was $24.78 billion, or $1.65 per share, as opposed to $23.64 billion, or $1.53 per share, during the same time last year.
Sales of iPhones, the company’s most significant product line, exceeded projections for the quarter, totaling $46.8 billion. Sales of the entire product range increased by less than 2% annually.
iCloud subscriptions, services like Apple Music and Apple TV+, warranties, and money from search licensing agreements like its partnership with Google are all part of Apple’s lucrative services segment.
Cook praised the expansion of Services, which saw sales rise by 11.65% to $26.65 billion in the quarter. Although Apple’s services sector gained 14.2% in the March quarter of last year, services revenue came in just short of StreetAccount’s projections.
In general, Apple hardware performed well during the quarter.
iPad sales increased 15% annually to $6.4 billion, while Mac sales increased almost 7% to little under $8 billion. In March, Apple unveiled new iPad Air and MacBook Air versions that were priced in the middle.
However, sales of Apple’s wearables sector, which includes the Apple Watch, AirPods, and accessories, fell 5% to $7.52 billion in revenue from the same time the previous year. Cook said the introduction of the Vision Pro headset in the previous quarter was partly to blame for the drop.
At $16 billion, sales in Greater China, which includes Taiwan and Hong Kong, decreased little from the previous year. Cook said that quarterly sales in China were increasing and that, but for foreign currency rates, Apple’s sales in the area would have been unchanged.
Conversely, Apple’s biggest market, the Americas, had a roughly 8% gain in sales due to some higher customer demand prior to tariffs. Cook told Steve Kovach of CNBC that tariffs have prevented Apple from seeing any indication of an order “pull forward.”
Cook stated, “We don’t think that tariffs had a major pull forward into the March quarter.” “There’s no clear proof of it.”
According to some experts, Apple’s decision to postpone several of its AI capabilities that were revealed last summer until the “coming year” during the quarter may make its most recent iPhones less appealing.
Among these were capabilities for Apple’s Siri AI speech assistant, which were the subject of ads the firm later removed. During an earnings call with investors, Cook stated, “We need more time to finish our work on these features so they meet our high quality bar.”